A David and Goliath Story – Fixed-term agreement invalidated by Employment Court

A bus driver has recently won a battle in the Employment Court arguing that he was not a fixed term employee, despite only ever being employed under a series of fixed-term agreements for the past 18 years. This decision left his employer, Tranzit Coachlines Wairarapa Limited (Tranzit), liable for back paying his entitlements.

Tranzit relied on the uncertainty regarding the renewal of their school bus driving contract with the Ministry of Education (Ministry) as their reason for continuously placing Mr Morgan on fixed-term agreements. Mr Morgan, on the other hand, argued that the 18-year contractual stability undermined Tranzit’s reasoning.

The Employment Court arrived at its decision by analysing Parliament’s intention behind s 66 of the Employment Relations Act (Act). The Court also referenced the International Labour Organisation (ILO) Convention no. 158, which recognises that fixed-term agreements may be appropriate in some circumstances, but emphasises that adequate safeguards should be provided so that employers did not use such agreements as a mechanism to avoid responsibility for employee entitlements. Where other options exist, preference is given to the agreement that least encroaches on the rationale underlying ILO 158.

The Court noted that the rollover of fixed-term agreements is a red flag but is not in itself an infringement of section 66 of the Act. Instead, to deem a fixed-term agreement ineffective, it is relevant to consider on a case-by-case basis whether the stated reasons were genuine and sincerely held (at the time the agreement was entered into) and whether those reasons were for proper purposes.

In this instance, the Court did not agree that Tranzit had genuine reasons based on reasonable grounds for providing Mr Morgan with a fixed term agreement. The Court held that:

The risk of the agreement not renewing was merely speculative, especially so when considering the contractual history of 18 years. In other words, Tranzit did not have genuine reasons based on reasonable grounds to offer Mr Morgan fixed term employment.

There was no evidence before the Court as to Tranzit’s financial circumstances, the value of the Ministry’s contract, or the extent to which the loss of that contract would impact upon Tranzit.

The existence of financial uncertainty relating to ordinary business risk is an insufficient reason to offer a fixed term agreement (otherwise every employment agreement would be a fixed-term). Even if it is a genuine concern for an employer, the potential loss of a revenue stream is not a reasonable ground on which to use a fixed-term agreement.

In coming to its decision, the Employment Court referred to Canterbury Westland Free Kindergarten which confirmed that fixed term agreements should be confined to “special discrete projects of limited duration as opposed to situations of ongoing employment”.[1] The Court did not consider that this applied to Mr Morgan’s employment. The services he provided were part of Tranzit’s wider business operation and Tranzit was therefore using the fixed-term agreement as a way to reserve itself the ability to dispense with Mr Morgan’s services in the event that the Ministry contract was lost, thereby excluding or limiting Mr Morgan’s rights in the process.